Designing an Electric Power System from Scratch

The Smart Electric Power Alliance (SEPA) launched its 51st State Initiative in 2014 with a simple question: What if there were no predefined electricity market? No rules. No market designs. No policies. No subsidies for any type of energy resource. Just a grid to deliver electric power from a variety of sources. And customers. Plenty of customers. How would you design an electricity market that optimizes the use of distributed energy resources?

Market Design for a 51st State

SEPA posed this challenge at a time when state-level debates over net metering and rate reform were often framed as a conflict between utilities and the solar industry. In an effort to provide a more collaborative framework for finding long-term, workable solutions, the initiative’s goals were twofold:

• Creating economically sustainable business models and integrated grid structures to ensure that electricity would continue to be provided safely, reliably, efficiently, affordably, and cleanly.
• Meeting customer demand in the near and long term for solar, storage, and other distributed energy resources.

Since that time, many state debates have become more heated, while some recent negotiations between utilities, solar organizations, and other industry stakeholders have resulted in encouraging agreements.

SEPA views collaboration and cross-industry partnerships as critical building blocks both for the growth of solar and other distributed technologies as well as for potential changes in the electricity utility sector. As a result, we have intensified our focus on identifying replicable models that allow industry stakeholders with competing interests to build the communication and trust needed to forge compromise solutions.

As part of the 51st State, SEPA issued two separate calls for papers. Phase I was targeted at envisioning what the 51st State’s hypothetical market structures might look like, while Phase II asked for roadmaps of how market transformation might unfold given specific starting and end points.

Submissions from both phases, available at SEPA51.org, resulted in a range of options, from incremental change to the status quo to paradigmatic shifts toward transactive energy business models within retail residential markets. Recently, SEPA issued a capstone document, “Blueprints for Electricity System Transition,” bringing together the ideas in these papers and our own work and analysis. The report also incorporates the insights and feedback received from hundreds of industry thought leaders and partners who have participated in the 51st State Initiative and other collaborative forums SEPA has organized.

We believe that leveraging these ideas in a structured manner can create a platform for fostering understanding, common purpose, and consensus building as individual regions and jurisdictions embark upon market reform in the future.

Market Transformation Is a Journey

The core of our approach is a series of doctrines, representing key areas of focus that can be summarized as follows:

• Promote efficiencies.
• Clearly define roles.
• Identify principles of ratemaking.
• Foster customer choice.

Our intent here is that stakeholders will use these doctrines to establish commonly agreed-upon, “least-regrets” anchors at the outset of conversations about market transformation.

The doctrines are also the basis for the “swimlanes” created in Phase II of the 51st State Initiative, which encompass all aspects of electricity market structures, roles, and responsibilities. The six swimlanes—retail market design, wholesale market design, utility business models, rates and regulation, asset deployment, and information technology—create a structured and logical breakdown of the complexities of our industry. By examining each of these aspects of the marketplace individually, stakeholders can foster a more well-rounded and holistic conversation about how to incrementally revamp today’s energy markets into something new.

Lastly, the stakeholder engagement process itself will become critical in taking the work conducted to date in the 51st State Initiative and turning it into actionable roadmaps adapted to the needs of specific jurisdictions. To that end, SEPA has outlined a suggested process and four strategic guidelines that can help stakeholders maintain focus: flexibility, incrementality, affordability, and transparency (FIAT). If plans being laid out do not align with FIAT concepts, they may face obstacles in implementation.

But the 51st State Initiative has never been about the destination; rather, the initiative has always focused on the journey. The four foundational doctrines should be viewed as a starting point for market reform conversations among utilities, regulators, policy makers, customer groups, and other market participants. Centering on points of commonality and agreement, the doctrines provide a safe harbor for all stakeholders in the face of major obstacles and a framework for consensus building in more contentious areas of discussion.

With many uncertainties ahead, the need for communication, trust, and new partnerships across our industry will be more essential than ever. If you are interested in learning more or contributing to this effort, please visit SEPA51.org. We welcome input from all sectors across the energy landscape. To learn about other SEPA priorities and activities, visit sepapower.org. ■

—Julia Hamm ([email protected]) is president and CEO of SEPA.